The euro and yen and China are moving today’s market psychology

Thursday, Apr 12, 2012

The question – as the yen weakens and the euro bounces – is how long can this last and will is be enough to shift the bearish sentiment in the Dow and S&P, thereby shifting the risk environment.

The dollar’s weakness is being over-exaggerated for now as the U.S. Dollar Index is bouncing around within the tightening range of a triangle pattern.

Past performance is not indicative of future results

The daily chart of the dollar isn’t doing anything more than exhausting from the downtrend line resistance of a triangle pattern and the 80.00 to 80.30 area which proved to be too much for the dollar bulls.

 

The S&P and Dow are both rallying with the weight of the euro worries and strong yen of their backs, for now. The issue is whether or not the bearish trend in equities and the AUD/JPY were established enough to entice traders to sell into this risk ON rally.

The AUD/JPY has rallied to the breakdown support level that began the acceleration to the downside, and this alone could be reason to question the continued follow-through higher. Treat this level as resistance, until it isn’t which is to say that let the market prove that there are bulls in the AUD/JPY waiting above 84.50.

Past performance is not indicative of future results

The continuation lower in the AUD/JPY and dare-I-say the RISK OFF environment in general is going to count on resistance from the past support that triggered the momentum breakdown in the pair. Notice that this level was resistance already once before on April 10 with the 85.61 high. The long shadow or wick left above reflected the exhaustion (and sharp sentiment shift) above the major psychological level as the candle closed at 82.49.

 

Of the three yen pairs that set up shorts, the AUD/JPY is the furthest along its downtrend – mainly due to the Australian dollar which has been weak. The AUD/USD then is another way to see if the aussie strength could be more than just a correction. The aussie is likely benefitting from the rumor of a better Chinese GDP. Tonight at 10:00pm EST there GDP number will be released and the market is pricing in expectations that it will be better than the 8.4% that is baked into the cake. So there’s some thought to the whisper numbers being factored in being higher than the aforementioned 8.4% so this means that anything less will be a letdown (and there’s even the chance that with a higher percentage being discounted today that even 8.4% may not be enough!) and the market WILL NOT like it and that would then mean a Friday the 13th sell off.  This is just a potential scenario that we must be prepared for once we understand part of the risk on catalyst.

This makes the rally through the 200DMA on the AUD/USD that more in focus especially when it push has carried it into the third swing short trigger of the pairs downtrend.

 

Past performance is not indicative of future results

The correction into the 34EMA Wave has triggered another swing short on the daily AUD/USD.

 

 As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.

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